Idea, Airtel linked to fate of Vodafone Gujarat dispute

SummaryThe fate of the tax dispute around Vodafone Essar Gujarat’s demerger of telecom towers to a separate entity for infrastructure sharing with other service providers is set to have tax implications for its partners Idea Cellular and Bharti Airtel too but not necessarily for all companies that transfer towers to a separate company, say experts.

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Interestingly, the tax authorities responded to a customary newspaper announcement of the demerger scheme of only Vodafone while Bharti Airtel and Idea Cellular got their schemes sanctioned without any objection from the tax officers. Vodafone had cited various judgments that sanctioned such demerger schemes, while leaving tax issues open, suggesting that a tax claim is no ground for barring a demerger of infrastructure assets aimed at better efficiency and lower operational costs.

The department held that the scheme led to avoidance of stamp duty of Rs 600 crore, assuming the market value of the assets demerged at Rs 15,000 crore. Vodafone denied allegation that the demerger was a tax avoidance subterfuge. It also denied the charge that transferring assets at book value helped in avoiding capital gains tax.